M+A: Success ratio lower than at Russion Roulette

The statement may seem to be a bit extreme but investors should be extremely cautious when assessing merger proposals in which a portfolio company is involved. This applies to investors in the bidder as well as in the target company. A win-win situation is highly unlikely and there will be one eventual winner (minus costs such as investment banking, legal and accounting feeds as well as integrating the business). All too often senior management falls in love with an idea or is egged on by advisers who are paid on completion only and therefore have no real stake in the ultimate success of the transaction. 'Independent' board members are anything but independent as they basically are creatures of the chief executive and in most cases nothing but an echo chamber for his 'vision'.

Treat Private Equity as normal Companies

The surge in "pass-the-parcel" deals among private equity firms illustrates that a large portion of any profits created by their activity ends up in the shape of fees in the pockets of promoters, insiders or (accounting, tax, legal and banking) advisers. The claim to be primarily driven by the desire to build businesses for the long-term is negated by the urge to crystallise fees. More often than not these fees are more the result of lucky timing. Hapless private shareholders have been induced to sell their holdings to private equity businesses at the wrong time, i.e. too cheaply. Weak takeover regulations make it very difficult for institutions and retail investors alike to keep their eye on the long-term and as a consequence usually end up the losing side when facing a deadly combination of a determined bidder - often in cahoots with incumbent management that is promised lucrative employment after the takeover is completed. To add insult to injury the same investors are later privileged to buy the same assets from the speculative funds at a higher price. Does anybody wonder why the returns from equity investment have been so mediocre in the past 10 years? If anyone would try to drive a nail through the heart of shareholder democracy he could not do much better than the private equity oligarchs and their acolytes in government, academia and the media. 'Let them eat cake' Marie Antoinette famously remarked. Little did she know about the million dollar parties that private equity moguls hold at the great unwashed public's expense.

Heathrow Airport Manager 'foregoes' his bonus

This statement gives the impression that he was expecting a bonus as a matter of course. No discussion about whether or not he has earned a bonus in the first place (after all, the big snow hit Heathrow before the end of the year, so final numbers could hardly have been determined already). But more importantly, a bonus seems to have become an entitlement, and a very large one on top of that as the bonus often is larger - sometimes by multiples - than the base salary a senior executive - and above all the CEO - can expect to receive. We have suggested on numerous occasions that a bonus for Chief Executives and other senior managers should not be handed out. Firstly because it is very difficult to calculate what part of the overall success of a company is due to their efforts and secondly because it is a slap in the face for all the other employees who make a contribution to the enterprise. Top management should only be entitled to a company-wide bonus system (including perks) that is paid to all members of staff as a percentage of base salary.

Foreign Listings: A regulatory Black Hole

The avalanche companies from countries with were loose regulatory regimes that seek a listing in a prestigious stock market has become quite a torrent in recent years. The authorities confirm that money also talks when the design and implementation of financial regulation is concerned. In search of lucrative fees for brokers and fund managers concerns about the quality of the accounts, legal protection of shareholder rights and corporate governance are brushed aside and the motto is: 'Anything goes!'. We wonder if it would not be wiser to apply regulations with extra severity when foreign companies want to benefit from a financial tradition that has been built up over many years, centuries in some cases? The ability of the courts, investors and regulators to sanction any company in a far-away land that does not play by the rules is minimal. It should also be reviewed if fiduciary institutions (Mutual Funds, Pension Funds, Banks and Insurance Companies) should not be made subject to closer controls, possibly even prohibitions to invest in countries where fiduciary standards are not of a high-enough quality. Only large companies and only those who fulfill the extra level of safeguards that we would suggest should be allowed access to capital markets.

Bank Pay: Special Case of a general Problem

As the U.S. considers a new push on bank pay we would like to remind the Solons in charge that the fish starts to smell from the top. So part of the solution to excessive bank pay is reform of ALL top executive pay. As Pro-Governance (Pro-Gov) has repeatedly suggested, the combination of all top executive pay into a simple structure (basic salary and a bonus on a percentage basis that is distributed to ALL employees) would go a long way towards solving this problem. Once top pay is under control the CEO has more of an incentive to reign in compensation. Why do Jamie Dimon or Lloyd Blankfein need a 'bonus', for showing up at the office? As long as the major shareholders, the institutions - who are really fiduciaries for Jo Public - neglect their duties and delegate supervision to regulators, politicians or Stock Exchanges there will no end to this abuse and the saying will remain in force: nothing succeeds like excess!

Ireland, Hungary expropriate pension funds

The idea of putting one's savings into officially-sanctioned pension funds receives another serious setback when EU member states (or better their ineffective politicians) think that the only way they can save themselves from further fiscal and economic disasters of their making is the expropriation of pension funds that to all intents and purposes have been created to provide their beneficiaries with benefits during their years of retirement. Where are the regulators that are so busy sticking their noses into every aspect of our daily lives? Where is justice and democracy?


No effective Inquiry into high speed trading

While a former Goldman Sachs employee is exposed to the full force of the law after having been accused of stealing high speed trading secrets that generated millions of dollars in profits for the investment bank we are kept waiting for a full and public inquiry into the way these codes affect the public market in securities. I fear we will have to wait a (very) long time, be it in the US or elsewhere.


Abusive Merger Practices: Period of Exclusivity

From time to time one notices that a potential bidder has been granted a period of 'exclusivity' by the company that may be acquired. While this practice may appear to be quite innocent it is open to abuse by the presumed bidder. It is also a free gift and there should be a penalty fee payable if the bidder wishes to withdraw from the bid.


Southern Cross - heavy debtload legacy from Private Equity Days?

The merry-go-round that has public companies taken 'private' by speculative funds only to see them floated to the public a few years later often leaves companies in a weakened position. Lack of investment, heavy debt loads and unfavorable capital structures mean that the only winners in this game of 'pass-the-parcel' are the insiders. Case in point: Southern Cross Healthcare, Britain's biggest care home provider, was bought by Blackstone in 2004 from another 'Private' Equity firm only to be floated on the public market two years later.


The future of Pensions - must reads for the concerned

Don't stop thinking about tomorrow by Con Keating

a few tasty morsels of wisdom:
"If the objective of government is the cessation of
provision of voluntary private sector occupational
pensions, it should say so. If not, it should not allow its
civil servants to adopt policies and practices which
ensure that this will occur."
The savings adequacy problemis compounded by the
fact that DC ‘pensions’ are just tax-advantaged savings
schemes which leave the individual exposed to risks
which are unmanageable"
And another paper well worth reading:
Tomorrow's investor: building the consensus for a People's Pension in Britain by David Pitt-Watson


No improvement in pay practices at banks - study

An study commissioned by the Council of Institutional Investors comes to the conclusion that changes to pay practices at major banks in the USA have lead to a deterioration rather than the intended improvement in incentives. The real question now is: if the CII is aware of this situation, why don't its members do something about it? After all, the top 20-30 investment institutions are in effect controlling all major public corporations as their combined stakes often cluster around the 40-50 per cent mark. Pay practices at banks and major financial institutions should be subject to the same restraints as those at any other publicly listed company. We have often suggested simple measures that could drastically alter compensation practices.